Cisco cuts workforce in transition to software

Bloomberg

Cisco Systems Inc., the biggest maker of equipment that runs the internet, plans to cut about 7 percent of its workforce, trying to recast itself as a provider of software-based systems and services.
The company will eliminate 5,500 positions from its workforce of more than 73,700, Cisco said Wednesday in a statement. Savings from the job reductions will be invested in newer businesses that Cisco expects to fuel sales growth, such as cloud computing and connected devices. The company said it will take charges totaling about $700 million associated with the restructuring.
“We need to make some pretty immediate shifts in our portfolio,” Cisco Chief Executive Officer Chuck Robbins said in an interview. “We have rapidly shifting customer expectations. The winners in the future will be the ones that understand those dynamics.”
Robbins, who took over in July 2015, has been working to rekindle growth by shifting Cisco toward software-based networking, security and management products, which customers increasingly prefer because they’re less expensive and more versatile. Cutting Cisco’s workforce may give Robbins the resources to speed the company’s transition, potentially helping it take advantage of stronger demand in markets such as security, which grew 16 percent in the fourth quarter, and collaboration, where sales rose 6 percent.

GROWTH POTENTIAL
“We are looking at the areas where we believe growth will come faster,” Robbins said on a conference call. “It’s not that we’re ignoring one in favor of another, we just want to make sure our investments are commensurate with the growth opportunity.”
Shares of the company declined about 1 percent in extended trading following the announcement. Earlier they had fallen 1.3 percent to $30.72, leaving them up 13 percent this year. “Cisco is plodding along,” said David Heger, an analyst at Edward Jones & Co. “They’re not overall declining. That’s a signal that they’re managing the transition fairly well.”